China's insatiable appetite

Sept. 17, 2013
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by Chris Lyddon

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China’s population and economy continue to grow fast, which means more demand for more food and more demand for better food. That means more demand for grains and oilseeds to feed people and livestock. Although China maintains a high level of self-sufficiency, it’s enough to make the country a big player on international markets.

With more than 1.3 billion people, China is the most populous country on earth, and the wealth of those people continues to grow fast. GDP growth has slowed to 7.5% in June but at a time when much of the world economy was struggling.

Recent weeks have shown the dramatic effect Chinese buying can have on the world market. In the week of June 28-July 4 alone, China bought 1,023,700 tonnes of U.S. wheat, according to the USDA’s weekly export sales report. The news agency Reuters reported that the China National Grain and Oils Information Center (CNGOIC) had revised its estimate of total Chinese wheat imports for 2013-14 up to 5 million tonnes from its earlier estimate of 3.5 million and 73% up on the previous year’s imports. “China bought more than 1.3 million tonnes of U.S. wheat in early July in a flurry of deals after U.S. prices fell to near the lowest levels in a year,” the agency said. “The damage to China’s harvest has kept local prices strong, spurring the call on imports.”

A recent attaché report on China’s food sector looked at growing trade. “According to China Customs data, China’s total agricultural trade, including fish and forestry, increased by more than 9% in 2012 to top $205.6 billion,” the attaché said. “While agricultural exports rose a moderate 5% year on year to $74.8 billion, strong import momentum of $130.8 billion resulted in an agriculture trade deficit of $56 billion, nearly 20% higher from the previous year.

“China-U.S. agriculture trade reached $40.4 billion in 2012, up more than 17% from the previous year,” the report said. “China’s statistics indicate that agricultural imports from the United States rose to a record $30 billion, with exports to the United States of $10 billion. Soybeans, cotton and corn were the top three United States agricultural imports to China in 2012.”

The Organization for Economic Co-operation and Development (OECD) and United Nations Food and Agriculture Organization (FAO) Agricultural Outlook 2013-2022 included a Focus on China. “With comparatively little agricultural land and water resources, China has made food security and self-sufficiency in the key food crops of rice and wheat a top policy priority,” it said. “Agricultural output grew 4.5 times over the 1978-2011 period following agricultural and rural reforms. However, food price inflation has been rising in recent years, and output is anticipated to slow in the next decade with increasing resource and rural labor constraints.”

“Increased availability of food and higher incomes have improved food security significantly with the number of undernourished falling by almost 100 million since 1990, despite adding an additional 200 million people to its population,” it said. “Reducing the estimated 158 million number of persons still undernourished remains a major challenge.”

“It is projected that China’s consumption growth will slightly outpace its production growth by some 0.3% p.a., similar to the trend of the previous decade. As a result, a further but modest opening of China’s agricultural sector is anticipated, although these prospects vary by commodity.”

The government has instituted a policy to prevent any further exit of land from agriculture while the 12th Five-Year Plan sets specific targets for area and production of wheat, rice, coarse grain, soybeans and tubers, the report said.

“This Outlook indicates that these targets should be met or exceeded in the next decade,” it said.

China’s imports of oilseeds are expected to rise by 40% over the 2013-22 period, accounting for 59% of global trade.

“Livestock, both the meat and dairy sectors, will continue to expand, with increasing feed requirements which will result in higher imports of coarse grains, likely beyond the current tariff quota levels,” it said. “China is expected to become the world’s leading consumer of pig meat on a per capita basis, surpassing the European Union by 2022.”

At the launch of the report in Beijing, FAO Director-General José Graziano da Silva said: “China’s agricultural production has been tremendously successful. Since 1978, the volume of agricultural production has grown almost five-fold and the country has made significant progress towards food security. China is on track to achieving the first millennium development goal of hunger reduction.

“While China’s production has expanded and food security has improved, resource and environmental issues need more attention. Growth in livestock production could also face a number of challenges. We are happy to work with China to find viable and lasting solutions.”

An interview by the website china.org.cn quoted Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation at the Ministry of Commerce, as saying that although China’s grain self-sufficiency rate has dropped below 90%, it does not mean the country’s food security is endangered,

In 2012, China’s grain output rose for a ninth consecutive year to a record high of 589.57 million tonnes, the report said. “Growing yields, however, did not rein in surging imports,” it said. “Because the nation’s total grain imports also hit a historic high of more than 70 million tonnes in 2012, China’s grain self-sufficiency rate has dropped below 90%.”

According to Mei, the increasing grain output cannot catch up to increasing consumption. It is worth noting that China’s domestic demands for high quality agricultural products, like rice, for example, have emerged and soared in recent years.

“In the past, it was rare to see Thai rice in the Chinese market, but now it is commonplace at urban supermarkets and some rural fairs,” it said. “Even a kind of extremely expensive Japanese rice has entered the Chinese market.”

Mei also highlighted increased demand from food. The report noted that from 2003 to 2012 China’s meat production rose from 64.43 million tonnes to 83.87 million tonnes, while milk production increased from 18.48 million tonnes to 38.68 million tonnes, and that consumption of eggs and poultry has also surged. “As production of animal-based food products has surged, so too has the consumption of grain-based animal feed,” it said. “Still, not all imported grain is consumed by the domestic market, Mei said. In fact, much of it will be processed for export.”

The report quoted Mei as saying that even if war were to break out, China’s food security still would not be endangered by the current grain self-sufficiency rate. “Wartime food consumption patterns would be quite different from those of peacetime,” he said.

The report said that the same population would simply consume less food.

The researcher pointed out that much of China’s arable land is now used for cash crops. He set a “red line” of 120 million hectares. As long as the area of arable land does not drop below that level, its grain area could be expanded in wartime, “when demand for cash crops would plummet as the need for grain surged. Mei was certain that China was capable of keeping most of its grain-importing channels smooth during wartime.”

He gave rising domestic labor cost and the use of chemical fertilizers among the reasons why domestic grain prices are higher than international levels. The high government purchase price of grain also helped keep prices high. High domestic prices to some extent explain surging imports.

According to the report, “China’s food security status is much better than many other countries. In the context of global economy, China’s economic growth will benefit not only its people, but also its trade partners.”

In a report earlier this year, focusing on China’s grain and rice imports, the International Grains Council (IGC) noted that imports of wheat, maize and rice have risen sharply in recent years. Reasons include not only demand, but also price differentials and quality discrepancies.

“In 2011-12, combined wheat, maize and barley imports rose by 167% y/y to reach 10.7 million tonnes, and rice imports (calendar 2012) almost quadrupled, to 2.5 million tonnes. In 2012-13, imports of grains and rice are forecast to fall to 7.6 million tonnes and 1.9 million tonnes, respectively, but still remain at historically high levels,” it said.

“The reasons behind strong growth vary by commodity and are a combination of sharply rising demand (mostly for maize), quality discrepancies and attractive international prices relative to domestic levels,” the IGC said. “China’s population, the largest in the world, is becoming increasingly urbanized and affluent. Consumers are moving away from traditional staple foods to more varied diets, leading not only to increased demand for animal feeds, but also a different quality of cereal grains for processing.”

At the time, late in March, the IGC felt that China could be relaxed about its rate of self-sufficiency. “While there is market talk of growing acceptance of imports, the current levels are still well within China’s policy of 95% self-sufficiency and below agreed quota levels,” it said. “The wheat tariff rate quota is 9.6 million tonnes, (of which the state trading share is 90%), maize is 7.2 million tonnes (60%), and rice 5.3 million tonnes, (50%). All grains have an in-quota tariff of 1%.”

“While import volumes are small relative to domestic production, they are significant in terms of their impact on global trade and markets,” it said. “In 2011-12, Chinese imports accounted for 2% of global wheat trade, 6% of maize, 12% of barley and 7% of rice.”

The IGC’s five-year projections, released in December 2012, put China’s wheat imports at 2.4 million tonnes (2% of global trade) in 2017-18, maize at 17 million tonnes (14%), barley at 2.5 million tonnes (12%) and rice at 800,000 tonnes (2%). These forecasts indicate that net imports will only rise significantly for maize over the outlook period. However, trade activity over the last two years highlights that deviations from the baseline projections could come, not only from fluctuations in growing conditions, but also from evolving quality needs and price differentials.

RISING OILSEED DEMAND

In an annual report on the oilseeds market, the USDA attaché described how the market is developing.

“Rising consumer affluence supports increasing demand for animal and fish protein and vegetable oils,” the report said. “In response, advancements in concentrated animal and aquatic production, growth in the feed industry and expansion in the crushing sector are spurring demand and the need for protein imports, such as soybeans and rapeseed, given insufficient domestic production. Thus, total oilseed demand will stay strong, particularly for soybeans.

“China is the world’s largest oilseed consumer. Population growth and dietary demands overwhelm limited domestic capabilities, leaving China dependent on foreign suppliers, particularly the U.S., Brazil and Argentina, to meet its supply gap.”

Chris Lyddon is World Grain’s European editor.
He may be contacted at: chris.lyddon@ntlworld.com.